21 Derivative financial instruments
The Group entered into both exchange-traded and over-the-counter derivative contracts for a number of purposes during 2012. The Group
had the right and intention to settle each contract on a net basis. The assets and liabilities of these contracts at 31 December 2012 all mature
within one year of the balance sheet date and are detailed below:
31 December 2012 Gross contract Fair value Fair value Net balance
notional amount of assets of liabilities sheet position
Derivative financial instrument included on balance sheet £000 £000 £000 £000
Foreign exchange forward contracts 17,755 73 301 228
Interest rate futures contracts 36,655 – – –
31 December 2011 Gross contract Fair value Fair value Net balance
notional amount of assets of liabilities sheet position
Derivative financial instrument assets included on balance sheet £000 £000 £000 £000
Foreign exchange forward contracts 22,552 12,662 12,533 129
31 December 2011 Gross contract Fair value Fair value Net balance
notional amount of assets of liabilities sheet position
Derivative financial instrument liabilities included on balance sheet £000 £000 £000 £000
Interest rate futures contracts 37,156 – – –
All derivatives contracts settle within three months of the year end.
Foreign exchange forward contracts
During the current and prior year the Group entered into a series of conventional over-the-counter forward contracts in order to secure
translation gains made on Euro, US Dollar and other non-Pound Sterling denominated monetary assets. The contracts require the Group
to forward sell a fixed amount of the relevant currency for Pound Sterling at pre-agreed future exchange rates. The Group made a gain
on these forward contracts of £71,000 (2011: loss of £84,000) as included in note 7. The opposite exchange loss is included within
financial investments.
There was no initial purchase cost associated with these instruments.
Interest rate futures contracts
During the year the Group continued short selling a number of government bond futures and sovereign futures denominated in a range
of currencies to informally hedge substantially all of the interest rate risk on specific long portfolios of the matching currencies denominated
corporate bonds. All contracts are exchange traded and the Group made a loss on these futures contracts of £337,000 (2011: £1,796,000)
as included in note 7.
Equity index futures
During the prior year, the Group purchased a number of equity index futures in order to hedge equity market exposure pending the
acquisition of shares in unit trusts. All contracts were exchange traded and the Group made a profit of £433,000 as included in note 7.
No such futures were purchased in 2012.
Notes to the consolidated financial statements Hiscox Ltd Report and Accounts 2012 87